P&G: healthy margins offset weak sales

ANALYSTS' CORNER

ICICI Securities recommends a Buy on FMCG major, Procter & Gamble. The report states that the company registered a y-o-y sales growth of 14.5 per cent of the core hygiene and healthcare segment in March 05 quarter.

The company's market share in sanitary napkins increased 500bps to touch a high of 49 per cent in July 05. Moreover, a sharp improvement was witnessed in the inherent profitability of the company.

Despite the levy of royalty, the operating profit grew 87 per cent to Rs 25.5 crore. While the transfer of the detergent manufacturing unit would impact future profits, optimisation of fiscal benefits could be a possible trigger.

After the recent run-up, the report predicts little short-term upside for the stock trading at FY06E P/E of 23.5x. Historically, the June quarter has been the worst for the company due to weak sales in the healthcare segment.

On this low base, the company has been able to register a significant improvement. PBIT margins of the branded business grew 579 bps y-o-y to 18.2 per cent and PBIT grew 68.2 per cent to Rs 17 crore.

Allahabad Bank: attractive valuations

ICICI Securities report states that Allahabad Bank's performance continues to be encouraging on the loan growth front, particularly farm credit, infrastructure and retail.

With its large rural and semi-urban network in relatively affluent northern India leading to a high low-cost deposit ratio and bulk of the investment re-pricing already over, margins are also likely to stay healthy.

Fee income initiatives have started to pay-off and may breach the 13 per cent estimate for FY06E. Valuations are attractive in the context of a worthy franchise and fast growth. Ample available headroom for FII purchase is the added attraction.

With big-ticket infrastructure loan demand staying robust, farm credit growing at 35 per cent and retail rising continuously, the report estimates the bank to post a 27.8 per cent loan growth in FY06E on the back of a tough base of FY05 when credit rose 37.9 per cent. The increased focus on farm credit is bearing fruit.

Mahindra: driven by volume growth

ICICI Securities recommends a Buy on Mahindra & Mahindra. The company's total volumes rose 14.9 per cent y-o-y to 17,970 units in August 05.

The growth continued to be led by the tractors segment, with volumes rising 44.4 per cent to 5,688 units. Automotive segment sales rose 4.9 per cent to 12,282 units.

Sales for the segment bounced back in August partly due to a shift in demand from July 05 to August 05 as floods in Maharashtra and Gujarat had impacted logistics and consumer sentiment adversely.

Among various segments in the automotive business, three-wheeler volumes declined marginally by 1.2 per cent to 1,952 units. While the light commercial vehicle segment volumes declined 11.5 per cent to 644 units, utility vehicle volumes increased 2.8 per cent to 9,027 units, even as flagship model Scorpio's volumes increased 28 per cent to 2,694 units.